The causes of income inequality

America is more distant from the 1933 beginning of the New Deal (82 years) than that beginning was from the 1865 end of the Civil War (68 years). Both episodes involved the nation’s understanding of equality: the war affirmed equality of natural rights, the New Deal addressed unequal social conditions. Today’s Democratic Party is frozen, like a fly in amber, in the New Deal preoccupation — but with less excuse than Democrats had during the Great Depression. The party believes that economic inequality is an urgent problem, and that its urgency should be understood in terms of huge disparities of wealth. Neither proposition is (to use the term Jefferson used when he wrote equality into America’s catechism) a self-evident truth.

The fundamental producer of income inequality is freedom. Individuals have different aptitudes and attitudes. Not even universal free public education, even were it well done, could equalize the ability of individuals to add value to the economy. Besides, some people want to teach, others want to run hedge funds. In an open society, rewards are set not by political power but by impersonal market forces, the rewards of which will differ dramatically but usually predictably. Beyond freedom’s valuable fecundity in producing unequal social outcomes, four other facets of today’s America fuel inequality.

First, the entitlement state exists primarily to transfer wealth regressively, from the working-age population to the retired elderly who, after a lifetime of accumulation, are the wealthiest age cohort. Second, big, regulatory government inherently exacerbates inequality because it inevitably serves the strong — those sufficiently educated, affluent, articulate and confident to influence the administrative state’s myriad redistributive actions.

Third, seven years of ZIRP — zero interest-rate policy — have not restored the economic dynamism essential for social mobility but have had the intended effect of driving liquidity into equities in search of high yields, thereby enriching the 10 per cent of Americans who own approximately 80 per cent of the directly owned stocks. Also, by making big government inexpensive, low interest rates exacerbate the political class’s perennial disposition toward deficit spending. And little of the 2016 federal budget’s $283 billion for debt service will flow to individuals earning less than the median income.

Fourth, family disintegration cripples the primary transmitter of social capital — the habits, mores, customs and dispositions necessary for seizing opportunities. When 72 per cent of African-American children and 53 per cent of Hispanic children are born to unmarried women, and 40 per cent of all births are to unmarried women, and a majority of all mothers under 30 are not living with the fathers of their children, the consequences for the life chances, and lifetime earnings, of millions of children are enormous.

Bernie Sanders is doing well, if not good, by reducing the debate about equality to resentment of large fortunes. He should read Harry G. Frankfurt’s new book, On Inequality (Princeton University Press). It is so short (89 pages) that even a peripatetic candidate can read it, and so lucid that he cannot miss its inconvenient point: “It is misguided to endorse economic egalitarianism as an authentic moral ideal.”

Sanders focuses less on empathy for the poor than on stoking the discontent of those who are comfortable but envious

Frankfurt, a Princeton professor of philosophy emeritus, argues that economic inequality is not inherently morally objectionable. “To the extent that it is truly undesirable, it is on account of its almost irresistible tendency to generate unacceptable inequalities of other kinds.” These can include access to elite education, political influence and other nontrivial matters. But Frankfurt’s alternative to economic egalitarianism is the “doctrine of sufficiency,” which is that the moral imperative should be that everyone have enough.

The pursuit of increased economic equality might, but need not, serve the ethic of sufficiency. And this pursuit might distract people from understanding, and finding satisfaction with, “what is needed for the kind of life a person would most sensibly and appropriately seek.” This has nothing to do with “the quantity of money that other people happen to have.” Frankfurt argues that “doing worse than others does not entail doing badly.” And an obsession with others’ resources “contributes to the moral disorientation and shallowness of our time.”

Sanders focuses less on empathy for the poor than on stoking the discontent of those who are comfortable but envious. They will ultimately be discomfited by the fact that envy is the only one of the seven deadly sins that does not give the sinner even momentary pleasure. Fortunately, for most Americans, believing in equality simply means believing that everyone is at least as good as everyone else.

This entry was posted on Wednesday, October 21st, 2015 at 9:37 pm and is filed under Equality Debates. You can follow any responses to this entry through the RSS 2.0 feed.
You can skip to the end and leave a response. Pinging is currently not allowed.